Why Merrill Lynch is Now the Belle of BoA's Ball
Wirehouse Merrill Lynch and the rest of Bank of America’s wealth management unit stood out as a particular bright spot for the bank in terms of productivity, according to its first quarter earnings report this year.
The unit’s net income increased to $1 billion -- up 14% from the same quarter the previous year -- even though the unit’s revenues decreased by 1% from the same quarter the previous year to $4.8 billion. Lower market valuations for assets and lower client activity for the brokerage functions led to the decrease in revenues.
But overall, the unit’s numbers pointed to growth. Client balances rose to $2.8 trillion, increasing 8% from the same period the previous year. Merrill reported a record number of new households, 85% more than the same quarter the previous year. And the number of FAs grew 1% from the same quarter the previous year to 19,523, a figure which includes 2,773 advisors who work in the BofA’s consumer banking division.
“This is a growth franchise and we are just grinding out the growth that’s embedded in it,” the bank’s CEO Brian T. Moynihan told analysts during a call about the quarterly results.
The bank, including its wealth unit, has been able to make profits even when revenues slide because of productivity gains. Moynihan credited digitalization for those efficiencies, saying productivity has been driven by “digital activity.”
The bank’s digital advantages have not gone unnoticed by analysts. Morningstar analyst Eric Compton wrote in a report issued prior to the quarterly earnings release that BofA is “a convenient one-stop shop for banking and investment needs,” which “acts as a key asset and deposit gatherer.”
He added, “… [W]hile advisor compensation is variable to a degree, the bank can invest in and maintain key technology platforms in the background that allow the business to run.”
But advisors and recuiters have not always loved Merrill’s management's devotion to digital.
As FA-IQ previously reported, Merrill structured its 2019 compensation plan to prod its advisors to get clients digitally engaged. Specifically, the wirehouse linked advisor compensation to how often clients log into apps and online portals.
The 2019 compensation plan, unveiled at the beginning of November 2018, requires that advisors’ clients log in at least once every 90 days to mobile or online portals for the advisors to earn client-engagement credits — worth 14 basis points on advisors’ production credits from clients’ checking and savings accounts.
A Merrill Lynch spokesperson told FA-IQ that only 40% of an advisor’s client base must be digitally engaged and that more than half of the firms’ clients already meet the logging-in criteria.
“There are advisors that are mad about this,” Danny Sarch, a recruiter and president of Leitner Sarch Consultants in White Plains, N.Y. told FA-IQ. “Any time you link the Bank of America with the success or purpose of Merrill Lynch, it complicates the relationship. It’s really astonishing in today’s world, when broker-dealers are supposed to be moving in the fiduciary direction. It really surprised me,” he added.